Check out screening process to find potential investing gems

You can wait for great investing ideas to come to you, perhaps via your reading or hot stock tips from friends, or you can go hunting for ideas on your own. Screening can be a big help with that.

When you screen, you simply set parameters describing what you’re looking for and then click a button for the results. You might, for example, seek companies in the S&P 500 with dividend yields above 3 percent, earnings expected to grow at 10 percent or more annually, profit margins of 10 percent or more, and/or price-to-earnings (P/E) ratios below 20.

By screening, you reduce a large field of companies to a more manageable group that meet your criteria. (You can even screen for mutual funds.) Screening prevents you from wasting time on companies that don’t fit your preferences and can also help you discover intriguing companies that you may not have otherwise noticed. It can also make you think more clearly about your investing style, as it forces you to hone your parameters.

Screening isn’t perfect, though. You’ll still need to study each contender carefully. You may have screened for four measures, but each investment has many more measures to assess. Some considerations are qualitative, too, and thus hard or impossible to screen for. These include management, brand strength, competitive position, industry characteristics and CEO hairstyles.

Meanwhile, screening depends on the accuracy of the underlying data. Even “good” numbers can be problematic, since accounting rules permit manipulation of earnings, revenues and other measures. Screening can also cause you to miss an otherwise excellent investment that misses the mark on just one of your criteria, perhaps by a smidge. So be flexible and tweak your settings when screening.

Ask the Fool

Question: Is there any reason why I might want to have multiple IRA accounts?

Answer: Well, you might open a traditional or Roth IRA with a regular brokerage so you can invest in individual stocks through it.

Meanwhile, you might open another IRA with a mutual fund company, if it’s the best way for you to invest in a particular fund. Also, if you change jobs, you might roll over money from your 401(k) into a new IRA so that you can manage that money separately.

It generally doesn’t matter if you have multiple accounts. Just know that most folks face a contribution limit for 2013 of $5,500 ($6,500 for those 50 or older), and that’s all you can contribute in total — it’s not the limit per account.

My smartest investment

Slow and Steady: In 1982, I began putting $97 per month in a tax-sheltered annuity (TSA) and continued to do so until 1996. Part of the contribution went into guaranteed interest, but most went into the stock market. My aim was to build a fund that could be used to add a glassed-in porch to my house and to restore an antique automobile. The porch is in place, the restoration underway, and withdrawals have also been used to cover other expenses.

The Fool responds: Many 403(b) accounts are referred to as TSAs because they initially permitted investments only in annuities. These plans, available to many education and non-profit workers, are similar to 401(k)s, and now permit a much wider range of investments. With many traditional pensions disappearing, retirement accounts such as 403(b)s, 401(k)s and IRAs have become vital tools to help Americans achieve comfortable retirements.

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